McSwain emails requesting interview, comments from pension manager

Editor's note: This is the email string mentioned by SDCERA officials in their response to Dan McSwain's column on the county pension fund's use of leverage in its investment strategy. The exchange began Wednesday, June 26, 2013.

(Here is a link to the county fund managers' response, as well as the original column)

Sent: Wednesday, June 26, 2013 11:59 AM, “Dan McSwain” wrote:

To: 'Dan Flores'

Subject: Risk parity, Treasuries leverage

Dan:

The Wall Street Journal is reporting that Bridgewater’s risk parity fund has struggled over the last two months. I’ve read the first quarter report from the June 20 meeting.

I’d like to talk to Lee for 15 to 30 minutes about how the county’s Treasury bond investments have done since April, what he has done (if anything) to adjust the leverage associated with the Treasuries portion of the portfolio.

Is he available? My deadline on this is noon tomorrow. Cell is best.

Many thanks,

Dan McSwain | Business Columnist

O: 619-293-1280 M: 760-638-9888

Dan.McSwain@utsandiego.com

UTSanDiego.com

350 Camino de la Reina, San Diego, CA 92108

By Friday, officials had not responded to my email, so I renewed my request:

Sent: Friday, June 28, 2013 10:19 AM, “Dan McSwain” wrote:

Dan, is anybody going to respond to me on this request? At the very least, I think our readers deserve a response from Brian White on how the county’s fund has dealt with the market turmoil this month.

I understand that long term investing can’t be judged from the ups and downs of a short period. However, the county fund’s investment manager is using derivatives and leverage to generate exposure to bond markets in the short term, while at the same time telling the board that this strategy reduces its risk. Now that markets have demonstrated that the risks can be substantial at times, I think this bears some explaining.

Dan (McSwain)

Sent: Friday, June 28, 2013 11:01 AM, “Dan Flores” wrote:

Hi Dan,

My apologies for my delayed response.

The June 20 Portfolio Strategist report that you read (report data ended March 31, 2013) is the most recent portfolio data that SDCERA and our portfolio strategist can provide you. Any changes in the portfolio for the period from April 1, 2013 – June 30, 2013 will be reported to the board at the August 15 investment committee.

As a long term investor, SDCERA’s Board uses the quarterly report as the shortest period to understand the complete picture of the portfolio’s overall performance. Any changes in an individual asset will be best understood in context to the overall portfolio and existing market conditions.

Please note that SDCERA’s portfolio uses elements of a risk parity investment strategy to diversify the portfolio’s overall risk, but it is not a risk parity portfolio. SDCERA’s portfolio is designed to minimize the risk of loss and maximize investment returns over the long term.

Sincerely,

Dan Flores

Sr. Communications Officer

San Diego County Employees Retirement Association

Sent: Friday, June 28, 2013 1:00 PM, “Dan McSwain” wrote:

I’ve read the first quarter report, which precedes the period in question.

So that’s a “no comment” on the fund’s response to the market turmoil since May 20?

Sent: Friday, June 28, 2013 2:41 PM, “Dan Flores” wrote:

Dan,

Please use the second paragraph as our comment to your questions with the addition that our quarterly report for that time period will be available on August 15. It would be helpful to let them know that the public can view the presentation live or recorded on our website.

At that time, we can provide you more complete information in response to your questions with context related to SDCERA’s overall portfolio and the markets.

Sincerely,

Dan Flores

Sent: Friday, June 28, 2013 3:17 PM, “Dan McSwain” wrote:

I’ll stick with declined to comment. In our March interview, Lee said that his use of futures meant that he can move quickly to avoid losses when markets move quickly. My question is whether he in fact did that this month.

A comment that the fund is a long term investor that uses the quarter report to understand its performance does not address that question.

Sent: Jun 28, 2013, at 4:38 PM, "Dan Flores" wrote:

Dan,

“Declined to comment” is not true. We have asked you to use our answer below in response to your questions because it will help readers understand that a long-term institutional investor such as SDCERA needs quarterly data for analysis to best understand how each asset interacts with all parts of the portfolio.

Sincerely,

Dan Flores

Sent: Friday, June 28, 6:30 PM, “Dan McSwain” wrote:

Dan,

I asked for an interview with Lee, and you declined, two days later.

I asked about the fund's trading activities this month, during a period of major market turmoil. Your answer to that very specific question was to tell me that your second quarter report will be available Aug. 15.

As always, I will accurately characterize your response. If that's not sufficient, you are certainly welcome to comment on our website, submit a letter to the editor, or otherwise directly address our readers.